I ran a small business and ran a ton of Groupons. We are on track for another record breaking year thanks to Groupon. Like anything with small business, you can take the good with the bad and mitigate risk, or you can just crash and burn by making poor choices.
Groupon is amazing, and not very cheap marketing that WORKS, unlike a lot of other not very cheap marketing that does not work. And we sold a LOT of Groupons. Some days 80% of customers are Groupons. When you get 2x your normal business walking through the door it's kind of hard not to make money. Cross sales, up sales, post-experience contact, word of mouth... It's not as easy as just setting up a Groupon and watching money roll in, you have to think about it and work hard to turn it into a positive experience.
But then again, this is business, right? Who said it was going to be a safe, easy bet? Groupon is just another way to market your business.
And it happens to be very consistent and effective.
Please do a write up on your experience, the more details the better. Your results sound great compared to what we've been hearing about recently and I'm certain HN would like to hear your story.
This is interesting but I'd say you're in the minority compared to most businesses that try Groupon (like restaurants, cafes) and have high fixed costs and slim margins.
Restaurants pay about 40% for food. The rest is payroll, rent, etc. In total, they make about 4%, but they lose money hand over fist if the restaurant is empty.
Also, that margin is very rubbery, depending on the dish. They might make a pasta dish for 20% of the cost, and a steak for 70% of the cost.
Also, drinks can have crazy mark-ups.
If the groupon is limited to high-margin meals, then they won't lose money. And they might make a profit on the drinks, or people who change their mind and go for a full price dish.
And they might get some repeat business. Also, it looks good for them to look full - passers-by might assume that the restaurant is packed because it's a good one.
The thing is, owners have to be very careful about the deal they give. Groupon seems a little unpredictable (for non-experts), so it can be very dangerous.
Of course, all marketing has its costs. And restaurants and cafes rarely rely on marketing (fast food excepted).
I commented earlier that Groupon is great for those businesses that inherently have unused inventory and businesses like skydiving schools would thus benefit but I'm doubtful many other types of businesses would benefit.
> When you get 2x your normal business walking through the door it's kind of hard not to make money.
That depends on your margins. A half off coupon that you get half the revenue of means you only get 25% of the revenue for your customers. That can be very hard to make money on, regardless of traffic.
Well, even if you do it at a loss, it's still marketing. Marketing isn't free, and it usually very costly. A stupid billboard costs $5k a month. Our businesses (and most, I'd imagine), run Groupons at a loss and make it up through marketing, cross sales and up sales.
We were getting $60 for a $169 product that cost us $80-100 to make.
So when you say it's hard not to make money with 2x the customers you actually meant you were losing money... I understand that it's marketing, but it's not making money until you get people coming back without a Groupon.
Of course you're going to sell a lot of Groupons. But what was the real cost to you based on your margins from whatever you were selling/discounting? Any repeat business from said Groupon customers once the deals are over?
I think this is the main problem for small businesses that have very slim margins and are not seeing return customers after the deal.
It seems that Groupons may be better for SMB's that are service-based (salons, dentists, spas) and have the margin to give.
We were getting $60 for a $169 product that cost us $80-100 to make.
You're right, a spa is a MUCH better fit for Groupon than a coffee shop. Higher margins, repeat customers, the ability to schedule customers (weekdays only, etc), etc.
That said, if Groupon is going to kill your business and is a poor fit, why run a Groupon and then complain that it does so? These horror stories you hear about, these businesses would likely be in dire straits anyway because the owners show little business acumen. The attrition rate for B&Ms is ridiculously high and always has been.
Here's the flip side (i.e., not from the perspective of participating businesses) - I hate daily deals because, as a customer, they are almost never relevant.
It's like signing up for a crappy mailing list full of spam in the hopes that once in a blue moon something useful would show up. Except, the signal to noise ratio is so poor you only ever find out about the really good deals after the fact.
If I didn't want a spa Groupon yesterday, I sure as hell don't want one today. I don't want your stupid emails clogging up my Inbox - if they were smarter about it they'd get something in my news feeds - so I can just briefly glance at it and go on with my day, instead of deleting all of these emails.
If Groupon had actually a variety of deals of interest to me (or anyone I know, really), then it might be a compelling proposition to me as a consumer. But as it is it's just a bunch of crap that few people want (or a ludicrous overload of things people want).
The truth is many customers (oddly) will buy something just because it's discounted! This is how sales can generate sales and compel people to buy non-relevant stuff.
Those of us who recognize that we're spending in net more irrespective of getting good deals shy away but there's always been the coupon-crazed folks out there who've never understood this logic. It's the same logic that propels Costco to sell you way more than what you need.
I suspect you don't use coupons or shop at Costco, but many do :) This makes me, while extremely anti-daily-deal-sites, begrudgingly acknowledge that they do have at least some viability. (note that "some" does not necessarily mean the valuations they've been receiving...)
This article eerily parallels a conversation I was having just last night about Groupon and Square: Groupon's a bunch of bottom-dwelling parasites whereas Square has already done so much to make it easier to accept credit cards, and their products are poised to add more and more value for small businesses.
I remember the first time I walked into an Apple Store after the iPhone had been released. Apple employees were using Win CE based handhelds with Symbol barcode scanners. It struck me as odd — and as something that was going to change. And when Apple figured out how to do it for themselves, with the iPhones or later the iPod Touch or iPad, then someone, maybe Apple, maybe someone else, would figure out how to make something that seemed like science fiction — employees able to check you out while you stood there, without going to a cash register — into something that anyone could do. It might only be 90% as good, but it probably only cost 10% of what those specialized Symbol devices cost.
Square has become that thing. I would have thought Intuit would've gotten there first. PayPal might have gotten their first. Or VeriPhone. All of them should have gotten there first, but I think there were probably huge Innovator's Dilemma style cannibalization and ego issues at work.
In the end Square was the company. I think these guys, as the author does, are the good guys. They're earning their keep. The people who work there are entitled to be proud of themselves, because they are very much poised to do very well by doing good.
"I’m tired of seeing small businesses get screwed."
I really don't understand this as a rationalization for the somewhat skewed portrayal of Groupon that this guy has been giving. I'm sure some small businesses have been screwed by choosing to do a poorly thought out Groupon. Groupon's business plan does not rely on them screwing over small businesses, in fact, they're heavily reliant on small businesses having a positive experience with the company. From all of the stories I've seen, it seems like there have been some nasty Groupon sales guys that may have took advantage of a small business owner, but it seems like Groupon is not encouraging that behavior in the long term. It's obviously not in their best business interests to do so, and Andrew Mason, being neither a fool nor a monster would not allow the business to lose sight of its longer term goals. Also, the fact that he took a very low payout tells me that he may be in it for the long haul.
What's a little bit hard to swallow is seeing a company get big by employing those tactics, and the penalty is "well, we had a few bad apples, and we're disciplining them now".
Whether right or wrong, all we heard about for a while from real users was the horror stories, giving the impression that most deals were bad for the small businesses using them. My gut reaction is "sure, I could make money hand over fist by lying (or misrepresenting things) to customers - making money by being honest is much harder".
In some ways it's a bit like the old MS stories. "They just did good business!". Well, no, they quickly established a monopoly then proceeded to abuse the hell out of it with several partners, which kept them entrenched and on top far longer than they would otherwise have been there.
"Hey they don't do that anymore!" That may be true, but the damage is done, and they get to reap the rewards for a long time with relatively minor punishments.
There'd be much more expense in doing long term education and one-on-one counseling with the small businesses that use groupon, and probably a MUCH higher satisfaction rate with them from a merchant standpoint, but they wouldn't have nearly the marketshare they do by going that route.
There seems to be something of a disconnect between the tech community and everyone else when it comes to Groupon. Investors clearly love it, it seems plenty of businesses are using it, and equally gazillions of people are buying them. I suspect, popular HN stories to the contrary, they'll successfully IPO later and won't collapse as fast as some hope.
Sure it's not for all businesses, and some will have a bad experience. Some business owners can't do math - some just aren't well suited to a group on model. Does that invalidate the whole company? I think not.
Sure, as a Groupon buyer you'll get plenty of deal offers for stuff you're not interested in. Well duh! I'm guessing that's been the case since day 1 anyway and it seems to be working regardless.
So why all the hate on tech blogs and commentaries? Might it be just a little bit of sour grapes? After all Groupon raised over a billion in capital (so if _I_ can't get a lousy million for my idea, what does that make me?) Worse most of the billion was not so much capital raised as a straight share sale. The reaction to other VC spends lately (notably the 40 million for Color) seems to fuel my hypothesis that most techies hate the success of others. They're playing this as some sort of zero-sum game.
It's also hard to get excited about someone else's success when it seems like such a simple idea. After all anyone can enter the same space - the barrier to entry is low (as plenty of clones will attest to.) But while clones always exist there is only one eBay, one Amazon, one Facebook, one Twitter. I suspect there will be one Groupon. As with most of these things, they're simple ideas, but require a lot of traction and good implementation to do well.
I say good for you Groupon. I say, let the seller of Groupons do the math before doing business, and let the buyers take advantage of what appeals to them. And maybe, just maybe, us techie folk could stand up once in a while, and say "well done" without begrudging them their success.
Of course Groupon might fail. Of course their IPO might suck. That can happen to any company. But we're acting like spoilt children, stamping our feet and complaining that life is unfair.
companies pay millions of dollars for a spot in the superbowl to reach customers and they aren't able to quantify them, and obviously million dollar spots on tv aren't for every business. But, like Groupon, that isn't to say they don't benefit businesses that use them right.
And it can be used as a way to build awareness. Maybe the restaurants and coffee shops that offered groupons didn't get anything out of it because their patrons didn't like the product enough to come back when there wasn't a discount. I don't think restaurants/coffee shops are inherently bad targets, you can be prompted to try someplace new and become a regular if the food is any good. Seems like bad decision making on the part of the business owner.
Groupon is amazing, and not very cheap marketing that WORKS, unlike a lot of other not very cheap marketing that does not work. And we sold a LOT of Groupons. Some days 80% of customers are Groupons. When you get 2x your normal business walking through the door it's kind of hard not to make money. Cross sales, up sales, post-experience contact, word of mouth... It's not as easy as just setting up a Groupon and watching money roll in, you have to think about it and work hard to turn it into a positive experience.
But then again, this is business, right? Who said it was going to be a safe, easy bet? Groupon is just another way to market your business.
And it happens to be very consistent and effective.